Monday, 19 January 2015

TweetThe UK
Government’s new Pensioners’ Bonds seem to be popular amongst those pensioners
who can afford to buy them.There seems
little doubt that the whole of the £10bn issue will be sold, and a million or
more pensioners will be very happy with the above-average return on their
investment.There are, though, two sides
to any investment.As anyone who’s ever
had anything to do with accounting will realise, one person’s savings are
another person’s debt.And in this case,
the debt is the government’s – and therefore ultimately ours.

What has been
presented as ‘selling’ £10bn worth of bonds to pensioners is in effect
borrowing £10bn from pensioners.There’s
nothing wrong with that of course; governments borrow all the time, and most of
their money is borrowed from citizens.As an alternative to simply taking our money away in taxes, paying us a guaranteed
rate of interest to loan them money is not without its attractions to many.

There are,
however, two special factors about this particular bond issue.

The first is
the generous rate of interest.A
government which has spent most of the past five years telling us that we must
cut the deficit because continued borrowing commits the taxpayers to paying
interest in future has decided, in effect, to pay over the odds to borrow £10bn
which it could easily have borrowed on the bond markets at a lower rate of
interest.

And the second is
that it has restricted access to this generous rate of interest to a small
section of the population, namely those pensioners who have spare cash to
invest.To put it another way, they have
decided to commit all those of us who pay tax to paying interest at above the
going rate to the most well-off pensioners.

I don’t know
how anyone can see this as anything other than a blatant bribe to a targeted
section of the population – wealthier pensioners – in advance of the UK General
Election in May.And a bribe paid for by
the rest of us at that – which is spun as a safe and well-rewarded investment
to help our elderly.

But there’s
another little lesson that we should learn as well.When they say that we can’t afford to go on
borrowing because of the future interest payments, what they actually mean is
that we can afford to borrow as long as it helps them to win an election.The worst of it is that it might actually
work, and the irony is that many of those benefiting are probably amongst those
whose support for cutting borrowing is strongest.